LC

Owners earnings I define the way Buffett does, net income + depreciation/amortization - capex + certain non-cash charges. I don't make an actual calculation in terms of assigning a Growth rate and then picking a discount rate to do a DCF. What I do is figure out the past history of owners earnings, look at that in terms of how much capital is employed to achieve those earnings, and (here's the rub), hope to know enough about the industry to know how certain those owners earnings will be in the future. Whether they will grow (tailwinds or superior moat) or shrink (headwinds, poor operations/management, poor economics vs competitors). And I try to keep I very general. I'm not looking to get so specific. That is, I'd rather be rougly correct than precisely wrong. I think if you know enough about a business and the environment in which it operates, and you have a history of how well the business has done in the last ten years, you can come up with a rough range under which that business would sell on a fair basis. Coke makes about 7-10 billion/ year in owner earnings per anum. It's worth somewhere in the 150 to 225 billion range, at my guess. I dont know whether its 159b or 203b. But in a sale, today, it would fetch somewhere in that range at my best educated guess. And At a price below that range you have the opportunity for exceptional returns, that's all I'm trying to do. Why 150-225b as my valuation? Well, compare the certainty of earnings to a government bond. At 150 billion, that 7b of earnings represents a 4.6pct return. At a 225b valuation, that 7b of earnings is a 3pct return. That equates to slightly higher than a t-bill, which is due to the certainty as a business which those earnings have.

My process is generally this: Read annual reports Try and form a rough understanding on how the business works and where it is going Figure out the last 5-10 years of owners earnings, and what the company has done with those earnings Then I actually write up a conversation between two hypothetical parties, a buyer and seller, for the entire company. I'll start with something like, "I'll offer you 10 dollars for the business" to which the seller will respond, "no way, we earned 30 mil last year! How about you buy it from me for 1 billion?" And then from there I just go back and forth zoning in on a reasonable range of what that transaction would look like. And that is my estimate of "intrinsic value" so to speak. At each price point, I write out what the opposite party would say. Something long the lines of, "okay well 150m is a bit of a lowball bid...we made 30m but we're in a growing market, have 20m of cash, another 50m of ppe and working capital, and no debt." Then I just compare to market prices, if there's a fair enough margin of safety I make a decision from there.

Hey, you're in Brooklyn? Want to meet for a drink and stock talk?

Buying and selling within a ROTH won't trigger any tax. Selling in your taxable account could trigger a taxable act if there is a gain (or loss) on the position. But simply buying BRK in this account won't create any taxes due.

As a 27 year old looking to make headway into the industry, there are not enough thanks to give. Cheers, Sanjeev! :)

My perception of the CFA is that, like most designations, it is not a replacement for wisdom, experience, and morals.

17 percent and having trouble finding ideas!

So the corporation owns the assets, and shareholders own the corporation, but shareholder's don't own the assets? Not sure how I follow that logic. If I own 100% of a company (and for simplicity let's assume no debt covenants), can't I go sell the company's assets if I want?

Thank you indy!

A short blog post on some reinsurance company busts over the years. http://nihoncassandra.blogspot.de/2013/08/greenlight-redlight.html It makes me wonder...the post leaves out reinsurance successes such as Berkshire's reinsurance companies (although to be fair, Berkshire isn't a hedge fund). Perhaps success in this case has to do with the humility and discipline of the manager and corporate culture (i.e. not taking overconfident, undue risks).

Just have to listen to Munger's lessons on cognitive biases. In this case, incentive bias. Clooney doesn't star in the "safe" movies (ex: the mediocre action movies guaranteed to draw an audience) easy money makers. Loeb wants Sony to make more of those movies and take less risk, which would reduce opportunities for Clooney. Not very surprising that Clooney is against it, even though he is typically a lot smarter than that. The same applies to Loeb. He doesn't care about any artistic or cultural values, he just wants the most profitable ventures put forth. What's wrong with that? Isn't the purpose of a business to put forth its most profitable ventures? Depends on your time frame. Do you want to put our the most profitable movies this summer or do you want to build a studio that great directors, actors, stage people etc. want to work for, and build a history of making quality work?

Just have to listen to Munger's lessons on cognitive biases. In this case, incentive bias. Clooney doesn't star in the "safe" movies (ex: the mediocre action movies guaranteed to draw an audience) easy money makers. Loeb wants Sony to make more of those movies and take less risk, which would reduce opportunities for Clooney. Not very surprising that Clooney is against it, even though he is typically a lot smarter than that. The same applies to Loeb. He doesn't care about any artistic or cultural values, he just wants the most profitable ventures put forth.

I don't know much about Loeb's back story or reputation but I can't quite argue with this quote from Clooney as it stands:

Great video collection, there are a few there I haven't come across. Thanks as always Sanjeev.

Another point is that once scale is achieved, they will also be able to purchase energy in bulk for some additional favourable economics. But I think Nate has it right: the idea of owning a car for independence (and a sign of a youth's entrance into adulthood, and all the other emotional ideas society has about car ownership) need to die a widespread death before this can ever achieve the scale needed to make it work.

Sounds like you need reinforcement of your decision to hold cash. Buffett's biggest mistakes have been ones of omission, i.e. missed opportunities. The mistake people make when they read this is saying to themselves, "Well I won't have that happen to me, I'm going to grab those opportunities!". Then they reach too far and perform poorly. Instead, you should consider it a good problem to have! After all, if you have something in common with Warren Buffett, isn't that a good sign? Value investing is very price dependant. If the prices don't work, no amount of rationalization can make it work. The price is what it is. Buffett and Munger have held cash/cash equivalents for YEARS before prices made sense to them. More importantly, just because prices make sense to someone else doesn't mean they make sense to you. This is an important lesson as well. I would advise if you can't find good values, keep looking. Do not compromise!

Well, assuming you agree with the pension assumptions and there truly is an overfunded situation, then yes you back it out if you want to do EBITDA/EV type analysis. (When I look at compounding investments I try to look at FCF on it's own and then form a qualitative view of the economics of the business (i.e. the moat, if any). I only look at EV or BV to form an opinion on how much capital investments are necessary, how much capital was put into the business in the past and how those past investments have ended up in the current EV.)

I think it depends on what the investment thesis is too. If you're saying the company is undervalued on an asset basis then I would consider it an asset. But if you're looking at a compounding machine or if the thesis hinges on the company's earnings, I'm not sure it plays a huge role. Also consider the company's competitors. Do they have pension liabilities? How does the funded status of each compare?

I'd take a page from Warren & Charlie's book and say muni's, but with rising rates and defaults...what's so wrong with cash!? In addition...the article seems too paranoid. The Era of Uncertainty? I am almost certain that Americans will be eating hamburgers, drinking Coke, living in single family homes, commuting via car, using their phones, using medical care, burning fossil fuels to heat their home in the winter and using electricity to cool it in the summer, and watching TV in 10 years. What exactly, is so uncertain? Interest rates? I can see it now, grandmothers everywhere in the sweltering heat exclaiming how they refuse to turn the central air on because interest rates are too high. Or my friends and family refusing to use their phones because of "macroeconomic uncertainty". Corporate profits are at all time highs, therefore I refuse to drink Coke. I'd like an RC Cola, please!

"I've owned 400-500 names, but most of the money was made in 10 of them."- WEB, Berkshire AGM 2013 How can Buffett's 20 punches quote be considered contradictory? He said if you took that approach it would improve your results, he didn't say it was his own approach. I think it's a general mindset. If you hit your 20 punch limit and have been successful, and then BAC comes around trading at .5 tbv, are you going to pass? I don't think Buffett meant it as a hard and fast rule, although I'm sure if people did treat it strictly I'm sure they would do fine. All I'm saying is there are always exceptions!

Below is a link to the S&P buyback index. May be a good plaice to start investigating when looking for cannibals: http://us.spindices.com/indices/strategy/sp-500-buyback-index

I think as the world communicates more with each other (ie the Internet) people will realize that they like not dying more than they like being stupid and fighting each other. That's my glass half full perspective, anyways.

What designations are necessary for bval positions? Is a CPA necessary?

Didn't Warren write long term puts on the S&P? We should rename you "Uncle Eric" :D

think about this model: you have a business which generates 100M every 10 years, but requires 100M in capex at the ten year mark to stay in business. is this a good business? it depends. for ten years, you get to invest those cash flows before needing to pump the capital back into the business. meanwhile you gain use of that "float" so to speak.